KUALA LUMPUR: CIMB Securities Sdn Bhd said glove manufacturers have not seen a noticeable increase in glove demand from the monkeypox outbreak for now.
In a note today, it said only a more severe and prolonged outbreak of monkeypox, particularly in countries with higher glove usage like Europe and the United States, will lead to increased glove consumption.
The firm said this would positively impact glove manufacturers.
CIMB Securities said it anticipates a short-term surge in demand if the outbreak escalates into a pandemic, leading to mass global vaccinations and widespread glove use for every physical contact.
"Nevertheless, we believe that global outbreaks such as monkeypox will continue to drive higher healthcare standards globally , especially in countries with low glove usage rates per capita, leading to higher long -term glove demand," it added.
CIMB Securities said glove makers have seen an improvement in client orders for the past few months.
"This is in tandem with more positive supply-demand dynamics in the glove industry, mainly due to depleting clients' inventories and capacity rationalisation activities of existing and new glove makers," it said.
The firm indicated that Top Glove Corporation Bhd has the greatest exposure to the African market, with 3 percent of its sales in the first nine months of the financial year 2024 (9MFY24) coming from that region."Based on our sensitivity analysis, every 5 per cent increase in glove utilisation rate will raise glove makers' calendar year 2024 to 2026 (CY24 -26) earnings per share (EPS) by 6.2 -7.4 per cent, on average," said CIMB Securities.
CIMB Securities has retained a 'Neutral' outlook on the rubber glove sector, with Hartalega Holdings Bhd as its preferred choice within the sector.
The firm observed that current sector valuations are +1.5 standard deviations above their 10-year average, primarily due to a low earnings base, with substantial earnings recovery expected in the future.
"However, even when factoring in the sector's calendar year (CY26) earnings, the projected improvement in earnings is already reflected in current valuations, which are close to +1 standard deviation above the 10-year mean," it said.